Today, a new memo from Xbox CEO Asha Sharma emerged.
News emerged today revealing some hints at the current thinking of Xbox, as we head ever faster towards the Xbox Showcase on June 7. There are some positive notes, but also some troubling ones.
Xbox is in a bind, in multiple directions. The dilution of attention is affecting the video game industry across the board, with competition from social media brainrot eating into traditional gaming hours and spend. Consumer sentiment is also at a big low right now, and AI hyperscalers have destroyed the memory market. The Steam Deck’s massive price jump and recent uncompetitive Surface prices underpin the problems facing all of consumer tech right now.
Xbox also has some existential problems. Xbox fans are clamoring for exclusive games, but games are where margins are the strongest for Xbox. Selling games on other platforms, in particular, notably PlayStation and Steam, where Xbox has bled a lot of its core audience over the past couple of generations.
New Xbox CEO Asha Sharma has signaled that changes are needed … she’ll have a huge balancing act to follow up.
Xbox CEO Asha Sharma says “tough decisions are ahead”
In a memo seen by The Verge and verified by Windows Central (as if you needed it), Asha Sharma added some context to Xbox’s current trajectory.
“We are building a stronger XBOX. That means making hard choices about what we build, where we invest, and what kind of company we need to be going forward, that is part of what you are starting to see in the shift from Xbox to XBOX. It reflects a decision to be deliberate in how we show up for the players who care most about this brand.”
Sharma also poured scorn on previous decisions Xbox had made with regards to Xbox Game Pass, which she said hurt subscriptions and battered retention. She noted that last month’s Xbox Game Pass Ultimate price cut had started to reverse those negative trends.
But what of these “tough decisions?” It could represent some painful pills for Xbox fans in the short term. Here are some of my initial reactions to comments and questions I’ve had on socials and beyond.
- Xbox Helix is safe, for now. Some asked me if those “tough decisions” could involve cutting hardware, particularly since Asha mentioned the need to hold tough decisions over “what they build.” I confirmed via my sources that there are no plans to pull back from delivering Xbox hardware. Growing Xbox’s hardware footprint is something Asha is intent on doing, although procuring memory for gaming products is, I’m told, an incredibly difficult task right now. I was told that Microsoft has teams literally working 24/7 sourcing memory for its needs right now.
- Could the tough decisions fall on Xbox Game Pass content? Xbox’s new CSO Matthew Ball said in his own analysis that subscriptions had grown as retail sales had decreased. Would pulling “day one” games out of Xbox Game Pass Ultimate improve Xbox’s margins on retail sales? It’s a hard sell in my view. Consumer sentiment is down across the board … I’m not sure you want to give people more reasons to quit Xbox Game Pass. It’s a guaranteed revenue and stable stream that insulates against “hits and misses.” But at the same time … they might be looking at how much additional money they might’ve made by keeping Forza Horizon 6 out of the subscription.
- Could the “tough decisions” fall on Xbox Game Studios and third-party publishing projects? I asked Matt Booty back in my interview with the new leadership team what Xbox’s new direction might mean for some of Xbox’s smaller studios. Booty at the time said everything big starts off as something small … indeed, Booty watched Minecraft grow from a solo indie project into a global phenomenon, and helping Minecraft through that transition is what got Booty the job in the first place. But, it’s certainly (and sadly) true that some of Xbox’s smaller studio acquisitions haven’t produced the fiscal success stories Microsoft’s finance departments most likely want to see.
- I’m not expecting a ton of movement on exclusive games. Xbox’s feedback website is inundated with requests for exclusive games, but as I said, selling software on other platforms is where Xbox’s best and brightest margins are right now. Maintaining your own store platform isn’t cheap either, and much like anything that requires memory, it has also increased in price. The best margins are still on your own platform, of course, but … given the fact margins on selling hardware are in the toilet, creating desirability for hardware you can’t even sell effectively doesn’t seem viable in the short to medium term. Something needs to change on the supply chain end before we get back to a meaningful layer of exclusive games, more than likely. Although I do expect some “token” commitments, such as either timed exclusivity windows or a couple of franchises’ future unannounced games going exclusive, such as icons like Halo.
The Showcase will be a high point, but I suspect some of the plans around “difficult decisions” are already in motion
Microsoft won’t let Xbox run itself as a loss leader, even if memory prices are expected to stabilize in 2028. Microsoft positioned Xbox poorly after its Activision-Blizzard acquisition, assuming Call of Duty would immediately solve all of its problems. Clearly that didn’t pan out … and Microsoft, given that they are one of the hyperscalers, probably should’ve seen the memory apocalypse coming.
Xbox has set itself up for a very tough couple of years. Its problems aren’t in a vacuum. It’s not as if there’s no desire for Xbox hardware; it’s the simple fact that Xbox can’t get the volume necessary to keep prices reasonable. I suspect we’ll see further Xbox Series X|S (and others) price increases before the year ends, as memory contracts end and have to be renewed.
But there is no time machine. Xbox can only move forward, much like any of us. Microsoft absolutely needs to be generous with Xbox here, though, given that a lot of Xbox’s mistakes are ultimately Microsoft’s mistakes. The “30 by 30” margin accountability demands of the post-acquisition era have needlessly put the Xbox platform into a position of weakness. Xbox needs to deliver on what fans are asking for, while simultaneously steering through a very strange economy. Wherever the burden ends up falling, it’ll be a painful moment.
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